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Michael Collins, President, MPC Consulting |
This is the fourth part of a four part article. The first part is "Manufacturer's Biggest Challenge? More Revenue." The second is “Do You Have a Competitive Advantage?," and the third part is "How to Change your Organization."
If you examine the customer list of most small and mid-size manufacturers (SMMs) you will find the 80/20 rule applies. In other words, 20% of their customers account for 80% of their sales volume. In fact, it is common for only 10% of the customers to account for most of the supplier manufacturer’s sales volume.
This is a dangerous situation for two reasons. First, if the large customer decides to offshore or give the business to a lower cost competitor, the company will be in jeopardy. Second, growth will be totally limited to the business that these customers allow the supplier.
Real security for manufacturers is to develop a diverse group of customers and a portfolio of market niches that will help the company to be able to “ride-out” cyclical nature of many industries and the fickle nature of many customers.
Diversification as a Strategy
A good example of diversification is SRC Holdings which is located in Springfield, Mo. When the company opened for business,following the recession of 1983, its area of expertise as engine remanufacturing. The company had taken on $8.9 million of debt.
”When we were starting out in the 1980s, more than 75% of our labor hours were in the truck market,” says CEO Jack Slack. “We did some investigating and found out that the truck market has a recession every six years. So we had to ask ourselves what we’d do if we had a recession.”
”We thought about what goes up in a down market,” he continues, “and we discovered that automobile parts go up, because people keep their cars longer and fix them. That’s how we got into the automotive aftermarket business. That kind of thinking became part of our culture and our way of doing business.”
Slack knew the more the company diversified, the safer it would be. SRC Holdings is now a mini-conglomerate with 26 businesses and 1,200 employees. They make automobile engines, refrigeration units, agricultural machinery, irrigation pumps, and much more.
SRC Holdings is not an unusual example. It makes the point that in the new global economy all manufacturers must defend themselves and consciously avoid a concentration of customers that can put them out of business. The answer to bad customers who control the majority of your sales is diversification.
Why can’t we just ask our sales reps to find new customers and markets?
Many manufacturers still think that it is the job of the sales organization to find new customers and markets. But, an audit I did in the 1990s showed that most sales reps don’t do this function and 90% of the manufacturers were unhappy with their sale coverage. Currently most sales reps are not going to make cold calls without a lead. Independent reps and distributor salesmen simply can’t afford to make these kinds of calls because they are only paid when they get an order.
The plan to define what kinds of customers and markets are the targets as well as a lead generation program to help find the prospects should be designed by the manufacturers. Trying to make the sales organization find new customers and market opportunities on their own is like trying to make a pig dance. The pig is not built to dance and when you try to make it dance it just gets mad.
This article will examine some practical approaches to finding new customers and market niches. They are based on insight, instinct, common sense and a good portion is frequently intuitive. You don’t have to use academic approaches like market segmentation to be successful. The following real-life examples will show you how other successful SMMs went about finding new customers and market niches and will prove that niche marketing does not have to be complicated to be highly effective.
Here are some approaches companies can follow.
